Bringing Predictability and Security to Developing Country Tariff Preferences

Abstract
Under the WTO Enabling Clause, tariff preferences are allowed if they are generalized, nonreciprocal and non-discriminatory. However, tariff preferences are also often withdrawn on dubious grounds and without due process. This reduces much of their potential value, because traders and investors lack the predictability and security necessary to make long term business decisions based on the market access opportunities that these preferences provide. This lack of predictability and security of unilateral tariff preference schemes has been one of the reasons that some developing countries have concluded regional trade agreements (RTAs) under Article XXIV GATT, despite the sometimes heavy price of reciprocity. In this paper we offer an alternative. We make three practical proposals to provide better security and predictability for both preference beneficiaries and donors: (i) a binding of GSP schemes under Article II GATT (negotiated under Article XXVIII GATT) (ii) as an alternative, a dispute settlement regime specifically targeted at unbound preferences, and (iii) legally secure rules on limitations to GSP programs, including transparent and objective graduation criteria, which may be bound or unbound. Contrary to what is often assumed, this paper demonstrates that it is perfectly possible to bind tariff preferences and graduation criteria under existing WTO rules. All it takes is sufficient political will.

Key Words
World Trade Organization, Enabling Clause, Tariff preferences.